Exam 16: Current Asset Management

As inflation pushes interest rates up,the cost of carrying inventory rises.

If you were a treasurer for a Fortune 1,000 corporation who has responsibility for investing "excess cash balances," which of the following alternatives would you be least likely to select?

Transaction balances are used to meet the regular cash needs of the firm,not irregular outflows that will be handled with speculative balances.

Transit float is caused by

An aging schedule of accounts receivable aids the financial manager in determining

In terms of trade credit,default costs vary indirectly with the quality of the customer.

The initial step in any effective cash management program is cash flow forecasting.

The most important reasons firms hold cash balances are the transaction and precautionary motives.

The Davis Manufacturing Company will collect an estimated $12,000,000 next year; and it will receive an estimated 20,000 checks.Davis' bank has offered to set up a lock-box system that will reduce float time by 4.5 days.The cost of the system will be $ .15 per check.What is the minimum annual interest rate on its cash balance that Davis should receive before it would be willing to adopt the lock-box system?

The purpose of finished goods inventory is to uncouple the production and sales functions so that it is not necessary to produce the goods before a sale can occur.

A company's investment in accounts receivable is determined by the company's level of sales,percent of credit sales to total sales,and credit and collection policies.

Commercial paper is much more liquid than money-market mutual funds because commercial paper is available to only the most creditworthy corporations.

Cash inflows come from

U.S.Treasury Bills are extremely liquid due to excellent secondary markets.

Stein Corporation uses semi-hex joints in its manufacturing process.If Stein's total demand for the joints for next year is estimated to be 57,000 units,and if the cost per order is $225,what is Stein's economic order quantity of semi-hex joints? Assume that carrying costs for semi-hex joints are $0.75 per unit.

The speed of the collections process is determined by three types of float: mail float,processing float,and transit float.

Companies with the largest cash balances reduce their risk of insolvency and thus maximize the value of the companies for their shareholders.

A construction firm that accumulates cash in anticipation of a significant drop in lumber costs is an example of the ________ motive for holding cash.

Customer Concern Insurance Company tries to settle claims as quickly as possible.In certain cases,agents can present payments to claimants which are cleared through the banking system like a check,but must be passed through the Insurance Company for approved prior to payment.This is an example of a

What are the most important types of current assets? List your answer in order of declining liquidity.